Bank of Lithuania’s aid package in response to the coronavirus pandemic
Like the rest of the world, Lithuania is living through an unprecedented shock caused by the coronavirus (COVID-19) pandemic. The Bank of Lithuania, together with the European Central Bank (ECB) and in close cooperation with the national and foreign governments, has taken coordinated actions to aid people and businesses facing financial difficulties. Information on the implemented aid measures is published on the Bank of Lithuania website.
The most efficient first aid includes economic assistance measures provided for in the government plan.
Within its mandate as the central bank of the Republic of Lithuania, the Bank of Lithuania is implementing monetary policy, financial stability and consumer protection measures aimed at facilitating corporate and household lending as well as allowing individuals and businesses in difficulty to defer loan instalments. During this challenging period, the Bank of Lithuania has also reduced the regulatory burden for financial institutions by postponing the scheduled inspections and committing to a more flexible supervisory approach.
|No||Measure||Impact assessment||Additional information|
|1.||Temporary relief from prudential requirements|
Temporary relief from
||Banks are allowed to temporarily operate below the level of capital defined by the P2G and have more freedom in planning losses and lending.|
|1.2.||Temporary relief in the composition of capital for the Pillar 2 Requirement (P2R)||On a case-by-case basis||
Banks are allowed to cover Pillar 2 requirements with capital instruments other than CET1.
|1.3.||Temporary relief from the combined buffer requirement (CCB + O-SII buffer)||
||If credit institutions fail to comply with the combined buffer requirement due to the COVID 19 shock, more flexible deadlines for submission of a plan for capital protection and recovery are applied and longer capital recovery timeframes are tolerated. Certain restrictions on profit distribution (dividends, premiums and share redemption) should apply as provided for in the Rules for the Formation of Capital Buffers.|
|1.4.||Temporary relief from the liquidity coverage ratio (LCR) requirement||On a case-by-case basis||Banks are allowed to temporarily operate below the level of capital defined by the liquidity coverage ratio (LCR).|
|1.5.||More flexible approach to management of non performing loans (NPLs)||Reduced prudential burden on credit institutions||Banks are exempted from compliance with previous guidance on NPLs and allowed to manage them on a case-by-case basis. Deadlines for submission of NPL management strategies are postponed until mid-June 2020.|
|2.||Temporary reporting relief and legal interpretation|
Eased accountability for supervisory purposes:
|Reduced administrative burden on credit institutions
||Scheduled supervisory measures are postponed in order to reduce the administrative burden on credit institutions.|
|2.2.||Greater flexibility for renegotiation of consumer loans and creditworthiness evaluation||Reduced administrative burden on consumer credit providers||During the pandemic period, a broader scope of application of Article 3(6) of the Republic of Lithuania Law on Consumer Credit is allowed; extended possibilities to defer loan instalments for non-defaulting borrowers.|
Temporary waiver of European Standardised Information Sheet (ESIS) requirements
|Reduced administrative burden on credit providers||During the pandemic period, banks are allowed not to comply with the requirement to submit the ESIS to their customers while the credit is being restructured. However, customers should be informed about any substantial changes proposed, clearly understand and agree to them.|
|3.||Released countercyclical capital buffer requirement|
Release of the countercyclical capital buffer (CCyB) requirement
The relaxed CCyB requirement entered into force on 1 April 2020 and will not be increased for at least 12 months, up until 1 April 2022; this indicative period will also depend on further economic and financial developments. Banks may use the accumulated capital to absorb potential losses (due to higher provisions and increased risk in performing loans) and maintain credit demand.
|3.2.||Postponed end-date of the phase-in period for O SII capital buffers||
||Previously, a higher (1%) O SII buffer for AB Šiaulių bankas was intended to be applied as of 31 December 2020. Now this deadline is postponed to 31 December 2021. Up until then, the bank will be subject to 0.5% rate.
The O-SII buffer applied to other banks has not changed.
|4.||Monetary policy instruments|
|-0.5% interest rate||Lending to banks is not limited, but it has to be secured against adequate high quality collateral. With regard to the situation in the euro area and individual countries, the ECB is planning to loosen eligibility criteria, while the Bank of Lithuania has put forward proposals that would allow to substantially increase the share of eligible assets held by banks operating in Lithuania.|
|4.2.||Eased conditions for TLTRO III
(targeted longer-term refinancing operation)
|-0.25% or -0.75% interest rates||Borrowing allowance raised to 50% of eligible loans; eligible loans are loans to non-financial institutions and households, except for household loans for house purchase.|
|4.3.||Expanded public sector purchase programme (PSPP)||Additional €120 billion allocated to purchases under the Eurosystem’s asset purchase programme (APP); purchases under the €750 billion pandemic emergency purchase programme (PEPP) will be conducted at least until the end of 2020||The Bank of Lithuania is purchasing government bonds; foreign NCBs are purchasing eligible corporate bonds in volumes coordinated by the ECB. The Bank of Lithuania’s theoretical possibilities to make additional purchases of government bonds are based on the ECB’s capital key (its capital share in the ECB’s capital). The Governing Council of the ECB has decided that restrictions on purchases under the PEPP may be extended, if necessary.|
Simplified KYC procedures
Given the current circumstances due to the nationwide quarantine, financial institutions find it more difficult to update their KYC information and collect relevant data in a timely manner, especially where a customer does not use any online banking services and/or other tools that would allow updating information remotely. The Republic of Lithuania Law on the Prevention of Money Laundering and Terrorist Financing does not set a specific deadline for updating customer information. This matter is left to the discretion of financial institutions that have to assess their money laundering and terrorist financing risks. In light of the above, after the deadline for a regular update of KYC information, financial institutions, having considered the entirety of the circumstances (including the customer’s ability to update KYC information remotely, information and explanations provided by the customer and their willingness to cooperate) may extend their internal deadlines. Please note that if a financial institution establishes that activities of a certain customer give rise to suspicion and/or that they carry out suspicious payment transactions, it must take immediate action and notify the Financial Crime Investigation Service of any suspicious payment transactions, notwithstanding the current circumstances caused by the pandemic.
Applications for authorisation
Considering the fact that applicants for authorisation or a licence, due to precautionary measures implemented in relation to COVID-19 both on a national and global level, might face some difficulties while trying to obtain the required documents from the Lithuanian or foreign institutions, the Bank of Lithuania has decided to provide the following information.
In cases where the necessary documents referred to in legal acts cannot be provided for objective reasons beyond the applicant’s control, the submitted application must include the supporting evidence for their absence (e.g. references to official statements on suspended activities of the relevant institutions).
Each failure to submit certain documents will be assessed individually and the Bank of Lithuania will take its decision on the possibility of initiating an assessment procedure without some of the required information. However, if it decides to initiate the assessment, the missing documents will have to be submitted before the date of the decision on the granting of authorisation or a licence.
According to applicable legislation, the Bank of Lithuania may be provided with copies of documents drawn up and/or issued in foreign countries, if they are legalised or certified with an Apostille, while the original documents that are legalised or certified with an Apostille may be submitted to the Bank of Lithuania later, but before the date of the decision on the granting of authorisation or a licence.
Applications for authorisation or a licence may be submitted through the E-Government Gateway. More information can be found here.